Impact of the Financial and Economic Crisis

The global financial and economic crisis is certain to have implications for the availability of finance for the infrastructure sector in Africa from development partners, the private sector and domestic sources.  
   
While Official Development Assistance is likely to remain roughly at current levels, the impact of the crisis and recession on Africa will slow down private capital flows.  Remittances from Africans in the Diaspora are also likely to be affected.

Recently gathered data by the Public-Private Infrastructure Advisory Facility (PPIAF) on new infrastructure projects with private participation have shed some light on the short-term impact of the financial crisis.  Privately financed infrastructure projects continue to reach financial closure but at a lower pace than that of 2007.  Globally, the level of investment in new projects represented a decline of about 40% compared with the level in the same period in 2007.

In the African context, project finance opportunities still exist but margins are lower. Lenders are more demanding on security packages and pricing.  As a result, competition to attract financing will increase among projects as a growing number of them attempt to raise finance.  The extent to which such trends persist or intensify will depend on the depth and breadth of the financial crisis and the consequent economic downturn.

How should Africa respond?  The answer will vary from country to country and from sector to sector.  A possible response will be to accelerate intraregional trade and investment.  Another is to reduce the cost of doing business by improving the investment climate and strengthening local and regional financial markets.  Pension funds for example can provide additional long-term capital for domestic investment. Finally, the region could also benefit from the vast potential of sovereign wealth funds and the emerging infrastructure bonds and infrastructure funds.